The son of Donald Trump is also called Donald Trump, and now he is following his father’s footsteps by attaching his name to a financial company that will speculate on real estate. Two years ago, Donald Trump launched a mortgage company that would focus on luxury properties. It failed dramatically when the housing market crashed. Now Bloomberg is reporting that Junior Trump is planning on launching a “hedge fund” that will invest in property in India.
Trump mortgage turned out to be a company that was run by a shifty chief executive and had very little to do with anyone called Trump. The Donald Senior had licensed his name out to the company but had little role in management–a fact that no-one knew until it failed.
So will The Little Donald be running a hedge or just attaching his name to it? It’s not clear right now. What is clear is that he intends for the fund to invest money in the same way that Trump Mortgage did–specializing in high end properties. Others who are looking to invest in real estate in India? Oh, right. Those real estate savvy folks over at Lehman Brothers.
Trump Jr. Plans $1 Billion Fund for Indian Property [Bloomberg]
real estate
In our more contrarian moods we like to point out to people that a real housing crisis would involve mass homelessness rather than a surplus of homes pushing down housing values. And when we get really cranky we go all generational war about it: “Well, this just means we’ll get to buy those baby boomers’ houses for less.”
We didn’t realize we were channeling a former head of the Federal Deposit Insurance Corp. After the jump, read William Isaac from today’s Wall Street Journal on why you should stop worrying and learn to love the housing crash.
We’ve finally gotten around to reading the words that the Bearded One spoke at Columbia Business School on Monday night. Stitching together his various proposals, it’s clear that Ben Bernanke has become a partisan of big government. The way we read it, he pretty much calls for the federal government to bailout lenders who have provided mortgages for homes that have suffered major declines in value.
At one point in the speech, Bernanke called on Congress to expand the Federal Housing Administration, both in terms of its role in issuing mortgages and determining underwriting strategies in order to help “troubled borrowers.” How does he expect the expanded FHA to help? By bailing out lenders with mortgages where the principal is now worth more than the value of the home.
“In some cases, when the source of the problem is a decline of the value of the home well below the mortgage’s principal balance, the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender,” Bernanke said.
In other words, the Federal government should step in to refinance loans in danger of defaulting due to the decline in housing prices.
Compared to December a year ago, pending home sales were down 24.2 percent. The National Association of Realtors Pending Home Sales Index, based on contracts signed in December, dropped to 85.9 from 87.2. These are the deals that are expected to close in January and February. House signings were down further than demographic and employment trends had implied.
All this seems to indicate that we’ve got a long way to go before our real estate led financial troubles are over. Lower housing sales also point to a higher default rate, as homeowners who can no longer afford their mortgages can’t find buyers for their property.
But what do we know? Home builders were up nearly 50% in January, presumably on the expectation that lower interest rates would spur home buying. And it’s not likely that so many investors could be wrong on something as fundamental as real estate, right?
Dec pending home sales fell 1.5 percent: Realtors [Reuters]
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real estate
Manhattan Real Estate Takes A Dip
Did Tishman and Blackrock Overpay For Stuy Town?
By John Carney
The notion that troubles on Wall Street are starting to filter out to the broader New York City economy got a boost this morning when a real estate group released its latest rental market report showing that all average apartment rents decreased in October. The downturn in rents was most sharply felt in doorman one and two bedroom units, according to The Real Estate Group which released the report.
This marks the first time this year that average rents in Manhattan decreased. But tell your studio-dwelling friends not to get too excited—rents for studios remain stable.
Also, you may have some added negotiating room when it comes to those always painful broker fees, as landlords are reportedly giving brokers who close deals things like all-expense paid trips, overseas airlines tickets, free I-Pods and digital cameras. Why not ask your broker if you can have the I-Pod?
Actually, the report raises some questions about how that deal led by Tishman Speyer to buy Peter Cooper Village/Stuyvesant Town might be working out. Recall that Tishman partnered with the Blackrock Group and the California State Teachers’ Retirement System to buy up the housing complexes for $5.4 billion just one year ago. At the time it was the most expensive real estate transaction in American history. Now the Real Estate Group reports that some of the most lavish deals for brokers—those free trips and airline tickets—are coming from Peter Cooper and Stuy Town.
Market Report [Tregny.com; pdf]
Real estate blog Curbed recently sat down with an investor in the field to discuss whether or not Andre Balazs’ High Line-squatting Standard Hotel is symptomatic of a developmentification of Manhattan that’s turning the island into a place where only utterly lame (but sufficiently rich) people will live. A simple ‘yes’ would’ve sufficed, but the expert, perhaps going through some sort of personal problem or maybe having had the unfortunate pleasure of drinking at Joshua Tree last night, took it one step further.
Fuck it, I say. Manhattan is one big joke. I think they should let highrises go up anywhere at this point. What’s the point of communities on the island anymore?
Everyone’s so priced out, does it matter anymore?
If you want a neighborhood/community, move to Brooklyn.
Let Manhattan be just one big bullshit skyscraper. Tower of Motherfuckin’ Babel. But for douchebags.
And the Lord spoke and said, “Let us make sure these douchebags do not understand each other, less they build a Tower of Douchieness. Let one douchebag not understand the other.” And thus the languages of Goldman, Lehman, and Morgan were formed and the Lord saw it and it was good.
First of all, this tower already exists, and its name is Windsor Court (and on the UES, Dormandy). Second of all, and we’re just passing this along, analysts from Merrill Lynch and Bear Stearns would like to know, “Hey, why weren’t we included on that list?”
Investor Rant: ‘Manhattan is One Big Joke’ [Curbed]
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Citigroup
Citigroup Hedge Head, Untroubled By Losses, Takes ‘Odd Couple’ Fetish One Step Further
By Bess Levin
He’s got all the re-mastered DVDs. He hosts ‘TOC’ marathons with Chuck Prince and Sandy Weill, drawing straws to determine who has to prepare the Chex Party Mix. He’s written op-ed pieces about Felix Unger’s sexual ambiguity. Two summers ago, he laid out $15,000 at a silent auction for a lock of Jack Klugman’s hair. And now Vikram Pandit, who joined C after the bank bought his Old Lane hedge fund last year, will sleep where Tony Randall slept.
The Citi Alternative Investments head has paid $17.9 million for the late Randall’s CPW co-op, topping Widow Heather’s original asking price of $17.85 million. The ten-room residence occupies an entire floor of the Beresford apartment building and, according to the Corcoran Group, “enjoys superb light and impressive park views through 20 windows spanning two exposures.”
For his part, Pandit, according to people familiar with the matter, has apparently said that he would’ve paid that much “or more” for a “1-bedroom shithole” on the corner of “fifth floor walk-up” and “this is the only neighborhood in Manhattan that hasn’t yet been gentrified,” if its presence had once been graced by Tony. (VP already owns Randall’s boyhood home in Tulsa, Oklahoma.) Pandit could reportedly “not give a baker’s f**k” about new neighbors Jerry Seinfeld and John McEnroe.
Upon joining Citi last year, Pandit was greeted by an approximately 40% drop in CAI profit. Old Lane fell 5.9% in August.
What Bubble? [New York Post]
Manhattan has largely been immune to the direct effects of the mortgage problems that are plaguing many areas of the country. In the first place, there are few subprime mortgages here, in part because real estate is so costly and in part because many co-ops and condos require would-be buyers to demonstrate a high level of financial stability.
What has real estate people worried, however, is the possibility of secondary or tertiary fall-out from the credit crunch hitting what has been one of the country’s hottest real-estate markets. The Gotham Gazette runs through the “spillover” scenario, with an eye to what happened in 1987.
Wall Street salaries and bonuses are only part of the story behind the giddy housing market. Many brokers and bankers benefit from generous mortgage packages provided by their employers. While those packages differ, they need to continue if the market is to remain robust. Without them, trouble will appear quickly.
And the spillover effect here should not be underestimated. Wall Street traditionally contributes about 20 to 25 percent of New York City’s economic output. (No wonder Mayor Michael Bloomberg worried about the U.S. markets losing business to London and other overseas markets.) Jobs are at stake, and less employment on Wall Street has consequences for the city.
The phenomenon has happened before. After the 1987 stock market rout, the market for one and two bedroom condos and co-ops in Manhattan was hard hit, with prices falling significantly. It took several years before they recovered and began an upward spiral fueled by low mortgage rates. Apartments of that size were frequently bought by younger traders and investment bankers – the first casualties of securities firms feeling the pinch of losses and lower revenues. That market problem also caused many securities firms to trim back their staffs, contributing to the recession that followed.
Will the Sub-Prime Crisis Reach Manhattan? [Gotham Gazette]
From the CFO Blog, the Implode-O-Meter is a website that tracks mortgage lenders that blow up. The site hit 100 “imploded” lenders yesterday, although one company insists that the reports of its implosion were greatly exaggerated, and is suing the Implode-O-Meter as a result.
Loan Center of California (LCC) was deemed an explosion last month (primarily based on what a LCC mortgage did to the pictured abode), causing Credit Suisse and WaMu to cut LCC’s credit, pulling the plug on almost $4 million worth of funding and wiping out 75% of the lender’s available cash. Although it is rumored that LCC was in the midst of an imminent collapse, the lender is accusing the Implode-O-Meter of shorting certain lenders and manipulating the market. LCC believes the Implode-O-Meter wanted to shut the lender down, and is asking for $50k in damages.
Implode-O-Meter wants to avoid self-implosion, and is asking for donations to fund legal expenses.
Blaming the Implode-O-Meter [CFO blog]
Implode-O-Meter
From Fintag – Check out these office real estate prices in Europe (from IVG). London office rent is off the charts, and scaled down accordingly to make pricey rival cities feel a little better. The average monthly rent for an office in London is twice that of Paris and nearly three times that of Moscow, the next two most expensive European cities. Average office rent in London increased more than 25% from last year. Is it time to short real estate (Fintag thinks so)?
Bricks and Mortar [Fintag]
It’s widely known that Blackstone had a powerful real-estate arm. Its $39.2 billion purchase of Equity Office Properties broke records and made headlines for weeks. The firm manages six general real estate funds and two internationally focused real estate funds, and has somewhere in the neighborhood of $20 billion of assets under management for its real estate deals.
But it wasn’t until the most recent filing by Blackstone that we learned how lucrative its real estate business has been in recent months. The firm’s real estate business garnered pre-tax income of $762 million in the first three months of this year alone, according to the prospectus filed with the Securities and Exchange Commission on Monday. That puts it well on pace to soundly beat the $902.7 million of income from real estate last year.
Blackstone doesn’t disclose the details of this huge increase in income but we suspect a good deal of it comes from flipping EOP properties. At the time the deal was announced, there was lots of tut-tutting from those who simply could not believe the gods of finance would not punish the hubris of Blackstone for daring to take on such a huge deal. Isn’t that the lesson of all of Greek tragedy?
Blackstone’s Jon Gray, who orchestrated the EOP buyout, looks to be following the path of a writer from another era who told us: fortune favors the bold.
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